The financial analyst and director of one of the nation’s top-ranked investor relations firms, talks with the Opportunist’s Managing Editor Leslie Stone (no relation) about why he prefers small-cap stocks, his upcoming investment conferences, and what he believes will facilitate America’s economic rebound.
Investment managers typically overlook the little guy—small-cap companies with market capitalizations below $1 billion—but Alan Stone prides himself on discovering undervalued companies before the “Street” does. His Los Angeles-based investor relations firm, Alan Stone & Company, LLC, which also has offices in New York City and Palm Beach, Fla., has had much success presenting its client companies to accredited investors, brokerage firms and institutional investors throughout the country.
Opportunist: Alan, please tell us about your firm.
Alan: Alan Stone & Company, LLC, provides a variety of investment advisory and consulting services to publicly traded companies in the $20 million to $100 million-valuation range. Our client companies are listed on the NYSE, AMEX, NASDAQ OTC Bulletin Board and the Pink sheets in the United States, as well as on the TSX [Toronto Stock Exchange], the Hong Kong Stock Exchange and the Australian Stock Exchange.
Opportunist: Why do you prefer the small-cap sector?
Alan: I believe there’s a greater chance of finding winners within the small cap arena. If you know what you’re doing, you can find one easily.
Opportunist: What criteria does your company look for when selecting companies with which to work?
Alan: We look for companies that are well positioned and have the potential to reach a market capitalization of $100 million or more. If you can find companies whose market cap will increase significantly, you have a really big winner on your hands. Sometimes their market cap doubles, triples, or even experiences five-fold gains during the time we work with them.
Opportunist: What are some of your success stories?
Alan: We’ve had some great winners in healthcare and medical devices. One pharmaceutical company, Questcor Pharmaceuticals, Inc. (NASDAQ: QCOR) was trading at about $2 a share with a market cap of less than $20 million when we first got involved. Now it’s trading in the high $20s with a market cap of $2.5 billion. A medical device company, IRIS International, Inc. (NASDAQ: IRIS was trading at about 50 cents a share and went up to the $20s and became the leading company in urinalysis and blood analysis technology. Samson Oil & Gas Limited (AMEX: SSN) was trading in pennies and is now trading at more than $2 a share.
Opportunist: Have you made any recent discoveries that are worth mentioning?
Alan: Yes, we have a brand-new client, Bakken Resources, Inc. (www.bakkenresourcesinc.com), which is an oil and gas company that we think has a tremendous upside. It’s not trading yet, but does have a symbol on the OTC Markets (BKKN). We are working with them to get them trading soon.
Opportunist: Please tell us more.
Alan: They have a substantial acreage position in North Dakota’s Bakken oil shale formation, and they anticipate substantial royalty income in the near future from well production. We have a tremendous respect for their management and their strategy for growth. They have exceptional mineral rights position in one of the richest oil producing regions of the world. When they start trading we think they’re going to do very well.
Opportunist: Have you encountered any risk factors with small caps?
Alan: Yes, you will encounter companies that couldn’t survive the high cost of being public or the market downturns, and five years down the road they just don’t exist anymore. We were working with a company called HearUSA, which was the second-largest retailer of hearing aids in North America. We thought they were leveraged, but they recently filed for bankruptcy and Siemens bought them out. Thankfully, their shareholders got a happy ending because it sold at a good price.
Opportunist: Do you have any advice for small-cap investors?
Alan: You have to be nimble when you have a good investment. Success in this arena takes a combination of education, experience and hard work. Don’t fall in love with an investment forever. Lock in a good profit and then move on and look for other opportunities. Set some limits and contain your risk, and don’t be afraid to take a loss of 10 to 15 percent.
Opportunist: How do you present your client companies to investors?
Alan: We offer a variety investor relations services that help companies gain visibility and enhance their shareholder value in the stock market. We offer road shows in which we showcase our client companies to stockbrokers, accredited investors and institutional investors through a series of meetings throughout the country. These meetings are typically luncheons, cocktail receptions, dinners, etc., that give investors opportunities to meet with undiscovered and often undervalued companies. Our road shows are held in key California markets such as San Francisco, Los Angeles, Newport Beach, Irvine and San Diego, as well as in Las Vegas, New York City, Miami, Fort Lauderdale and Palm Beach and Boca Raton, Fla.
Opportunist: What other services do you provide?
Alan: We also offer 8-to 10-page research reports that we distribute to potential investors. About 14 years ago we purchased Wall Street Research™, a 30-year-old independent research firm that is now ranked No. 1 on the Google, Yahoo! and Bing search engines. It’s a separate entity from Alan Stone & Company, and it’s renowned for its leading independent research on public and private companies. We are often the first research firm writing about a company, and we distribute our materials on a global basis through our Internet site and proprietary database of over 100,000 global investors. Because we are ranked in first place on the popular search engines it gets out to various Internet portals around the world, including AOL, Bloomberg, The New York Times, Google, Yahoo!, MSNBC, and more. So that’s an end of business where we publish and distribute corporate profiles on companies listed on NASDAQ, the OTC Bulletin Board, NYSE and TSX. We have four or five analysts that work for us and we produce Morgan Stanley or Merrill Lynch quality research for small public companies. This creates a lot of exposure and, ultimately, buying power.
Our reports have been quoted in the The Wall Street Journal, Investor’s Business Daily, Bloomberg, CNBC, Fortune and Equities magazine.
Opportunist: Tell us about your conferences.
Alan: Our Wall Street Research Small Cap Conference VII is going to be held on Nov. 15 and 16, 2011, in New York City. The sponsors of that conference are the NYSE, AMEX, NASDAQ and OTC Markets. The turnout is about 200 investors over a day and a half. It’s a boutique conference that we limit to about 20 companies that we select to present. Attendees as mostly money managers, portfolio managers and hedge funds and wealthy individuals and super accredited investors. It’s a great chance for small companies to gain visibility.
We also provide tours of the NASDAQ Market Site in Times Square, and a tour of the floor of the New York Stock Exchange and a chance to ring the bell. For those who can’t attend, we offer a webcast and video. FOX TV is going to be there this year, and we hope to get Bloomberg as well.
Patrick Howell, Executive Director and founder of the San Diego Investment Conference and I anticipate forming a joint venture and are running a conference together on Oct. 5 at the Pacific Club in Newport Beach, Calif. We are expecting investors from Los Angeles, Orange County, San Diego and San Francisco. We plan to roll this out to additional cities in the near future, including San Francisco, Los Angeles and Las Vegas.
Opportunist: How did you break in to the business Alan?
Alan: I have a Bachelor of Science degree in economics from The University of Pennsylvania Wharton School and an MBA from New York University. I also studied at the London School of Economics. After I received my MBA, Prudential Capital Markets recruited me to work as an analyst and I worked on large transactions for their investment portfolio for three years. Then, in the early 1980s, I worked on high-yield bonds for Merrill Lynch Asset Management, which was the largest high-yield bond fund on Wall Street. Next, I went to Ladenburg Thalmann and worked in the underwriting and IPO business and did some investment banking and institutional brokerage work.
Opportunist: To what do you attribute your success?
Alan: [Laughs] I’ve always been a generalist and I have been fortunate to have the opportunity to work in about 85 percent of all the industries out there. What I’ve discovered through the years is that we kind of stick to what we understand. You have to learn from trial and error. My training as an analyst and being good with numbers and understanding the risks and the dynamics of valuations of securities has served me well.
Opportunist: How did you end up in Los Angeles?
Alan: When the market dried up for about a year after the 1987 crash, I moved to California and eventually incorporated Alan Stone & Company, LLC. The American Stock Exchange asked me to run the AMEX Club in Southern California for AMEX listed companies. Once I started doing that, NASDAQ asked me to coordinate meetings for them. That got me into the investor relations business 20 years ago, and I began a shuttle service to the capital markets. In those days the capital market on the west coast wasn’t very big, so I began working with and promoting public companies that were seeking access to the capital markets. Over time I established myself with companies from other parts of the country and within the last seven or eight years we’ve expanded globally. We now work with companies from Canada, Europe, Asia, China and Hong Kong.
Opportunist: Which industry sectors do you find the most dynamic?
Alan: Right now natural resources and energy are promising and in certain areas technology and health care have potential. It comes down to stock picking—and certainly being in the right sector at the right time. Picking the right company, the right stock, and the right management team. Timing is also critical. You have to know when to buy low and sell high. There is a fundamental and a technical side to investing as well. All good companies at certain times are overvalued. If you can find them when they are undervalued the chances are very high that they’re going to be very successful as an investment.
Opportunist: Do you believe the United States can once again become an economic force to reckon with?
Alan: The United States is a declining superpower. It’s terrible but it’s true. We need to get our act together economically and politically to maintain our superpower status. We are losing our footing as a world economic base. We aren’t the same country we were 10 years ago. We’ve lost our manufacturing, and jobs are being exported to cheaper wage countries. The downgrade of our credit rating is evidence of that. China is a growing economic power. The Hong Kong stock exchange trades in bigger volumes and with higher valuations and has more IPOs than the New York Stock Exchange. South America is emerging, and Russia is powerful. We definitely need a more clear-cut energy policy. We are losing out, but we have a lot of resources—both onshore and offshore.
Opportunist: What changes do you hope will occur?
Alan: I think our administration should allow more drilling in a controlled manner in the United States, with easier permitting and more onshore drilling where there is limited risk. There are a lot of safeguards in place, some of which are federal—and we do need regulations to mitigate risk and ensure that we don’t have situations like last year’s disaster in the Gulf—but there are opportunities to increase production and conserve consumption too. This could be a tremendous growth market.
Opportunist: What are your thoughts about the recent stock market volatility?
Alan: The markets obviously turn on volatility, which leads to greed and fear and makes for scary and tenuous times. But the big crash in 1987 was much more severe in many respects. Markets today are global in nature, so they’re precipitated by changes in direction—from political conflicts to rioting and wars, to energy spikes, recessions and fear. When things are going well, there is upward momentum. When things take a negative direction there is often a focus on fear and people get scared and they sell.
Opportunist: Do you think the economy will rebound?
Alan: I don’t believe the economy is as weak as people may believe. It takes time to kind of work its way through to equilibrium, but we aren’t in a recession now. We do have some growth. We’ve had six or seven consecutive quarters of growth, and corporate profitability, for the most part, is good. Up until a month or two ago the stock market was in a nice rallying position even though there are still a lot of fundamental weaknesses, such as high unemployment and general sluggishness. With all that said, I think this is a very good time accumulate selected, carefully picked stocks.